Mendoza School of Business

The yuan problem isn’t going away

Published: January 11, 2011 / Author: Paul Monica

 The following is an excerpt from an article on which quotes finance professor Jeff Bergstrand about the the bigger-than-expected decline in China’s trade surplus.  To read the entire column, visit: The yuan problem isn’t going away 

Now that China’s trade surplus has narrowed to just $13.1 billion, do you think that President Hu Jintao and President Obama will just spend next week’s visit at the White House talking about the weather?

Don’t count on it. This massive trade surplus — and the fact that the United States still views China’s currency as artificially low — is likely to dominate the talks between the two leaders on January 19.

Obama may rightfully point out that U.S. manufacturers will be at an unfair competitive disadvantage to China as long as the yuan is not trading more freely. A lower yuan makes goods exported by China cheaper.

But at the same time, Hu could counter that China’s economic growth is actually slowing and that the trade gap is no longer significant. He could also wryly point out that the Federal Reserve’s bond buying program — the much-maligned QE2 — may not help the dollar appreciate over the long haul either.


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